Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<p>Three years ago on 22 March 2018, after <a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent Holdings (700 HK)</a> reported full year earnings for the year to December 2017, <a href="https://www.smartkarma.com/entities/naspers-ltd" target="_blank" data-smartkarma-citation="entities:21085:1" rel="noopener">Naspers (NPN SJ)</a> launched a sale of shares in Tencent of about 2.0% of shares out, lowering their stake and raising cash which was supposed to be used to buy more e-commerce assets, with the lofty but separately-stated goal being to "balance the portfolio" over the coming years. </p>
<p>At the time, Naspers was trading at a 40% discount - a level with which Naspers management was clearly unhappy - and Tencent was roughly 91% of Naspers NAV. </p>
<p>At the time, apparently wary of signalling more pressure on Tencent shares from potential future sales, Naspers promised it would not sell any more Tencent shares for three years. </p>
<p>But that set up the likelihood of a sale after Tencent reported earnings in March 2021, this time by <a href="https://www.smartkarma.com/entities/prosus-nv" target="_blank" data-smartkarma-citation="entities:28104:1" rel="noopener">Prosus (PRX NA)</a> which inherited the listed equity positions from Naspers in a dropdown spinoff 18 months ago.</p>
<p>Then that sale did not arrive. </p>
<p>There were, of course, ructions in the market that same week as Family Office Archegos Capital Management ran into a spot of difficulty and both it and its financiers had to sell (in a hurry) tens of billions of dollars of concentrated positions - many in the category of Chinese stocks listed outside of mainland China. It was clearly not the best time to sell a large block, so it appears Naspers/Prosus waited. </p>
<p>Today, Prosus <a href="https://www.prosus.com/news/accelerated-offering-of-tencent-shares-by-prosus-nv/" target="_blank" rel="noopener">announced</a> an accelerated offering of Tencent shares - again selling 2.0% of shares out, dropping their position from 30.9% to 28.9% of shares outstanding, at an indicated 5.5-8.7% discount to last close - a price range of HK$575-595/share. Again Prosus has locked themselves up for longer than normal.</p>
<blockquote>
<p>Prosus has committed not to sell any further Tencent shares for at least the next three years, in line with its long-term belief in the potential of the business. </p>
</blockquote>
<p>This leaves one with the question... what next?</p>

Three years ago on 22 March 2018, after Tencent Holdings (700 HK) reported full year earnings for the year to December 2017, Naspers (NPN SJ) launched a sale of shares in Tencent of about 2.0% of shares out, lowering their stake and raising cash which was supposed to be used to buy more e-commerce assets, with the lofty but separately-stated goal being to "balance the portfolio" over the coming years. 
At the time, Naspers was trading at a 40% discount - a level with which Naspers management was clearly unhappy - and Tencent was roughly 91% of Naspers NAV. 
At the time, apparently wary of signalling more pressure on Tencent shares from potential future sales, Naspers promised it would not sell any more Tencent shares for three years. 
But that set up the likelihood of a sale after Tencent reported earnings in March 2021, this time by Prosus (PRX NA) which inherited the listed equity positions from Naspers in a dropdown spinoff 18 months ago.
Then that sale did not arrive. 
There were, of course, ructions in the market that same week as Family Office Archegos Capital Management ran into a spot of difficulty and both it and its financiers had to sell (in a hurry) tens of billions of dollars of concentrated positions - many in the category of Chinese stocks listed outside of mainland China. It was clearly not the best time to sell a large block, so it appears Naspers/Prosus waited. 
Today, Prosus announced an accelerated offering of Tencent shares - again selling 2.0% of shares out, dropping their position from 30.9% to 28.9% of shares outstanding, at an indicated 5.5-8.7% discount to last close - a price range of HK$575-595/share. Again Prosus has locked themselves up for longer than normal.

Prosus has committed not to sell any further Tencent shares for at least the next three years, in line with its long-term belief in the potential of the business. 

This leaves one with the question... what next?

Be Careful What You Wish For REDUX - Prosus Selling US$15bn in Tencent

Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

<div>
<p><a href="https://www.smartkarma.com/entities/prosus-nv-75c7a0c4-16ff-4433-a40f-25ae5b24077d" target="_blank" data-smartkarma-citation="entities:28498:1" rel="noopener">Prosus NV (PROSY US)</a> aims to raise around US$14.5bn via selling a 2% stake in <a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent Holdings (700 HK)</a> overnight in Hong Kong.</p>
<p>We spoke about the placement in <a href="https://www.smartkarma.com/insights/tencent-placement-another-reluctant-but-well-flagged-sell-down-lifting-the-us-14-5bn-overhang" target="_blank" rel="noopener">Tencent Placement - Another Reluctant but Well-Flagged Sell Down, Lifting the US$14.5bn Overhang.</a></p>
</div><div><p>We have been covering the lock-up expiry since Feb 2021 in:</p></div><div><ul style="list-style-type: disc;">
<li><a href="https://www.smartkarma.com/insights/tencent-placement-lock-up-expiry-us-10bn-block-and-buyback-linked-holdco-trade" target="_blank" rel="noopener">Tencent Placement Lock-Up Expiry - US$10bn+ Block and Buyback Linked Holdco Trade, and</a></li>
<li><a href="https://www.smartkarma.com/insights/tencent-placement-lock-up-expiry-block-and-buyback-linked-holdco-trade-update" target="_blank" rel="noopener">Tencent Placement Lock-Up Expiry -  Block and Buyback Linked Holdco Trade Update</a></li>
</ul></div><div><p>While the overall cash being raised should be positive for Prosus and Naspers, not all aspects of the deal will be viewed positively. </p></div>


Prosus NV (PROSY US) aims to raise around US$14.5bn via selling a 2% stake in Tencent Holdings (700 HK) overnight in Hong Kong.
We spoke about the placement in Tencent Placement - Another Reluctant but Well-Flagged Sell Down, Lifting the US$14.5bn Overhang.
We have been covering the lock-up expiry since Feb 2021 in:
Tencent Placement Lock-Up Expiry - US$10bn+ Block and Buyback Linked Holdco Trade, and
Tencent Placement Lock-Up Expiry -  Block and Buyback Linked Holdco Trade Update
While the overall cash being raised should be positive for Prosus and Naspers, not all aspects of the deal will be viewed positively. 

Tencent Placement and the Holdco Implications - Deal Almost Done, Now What?

Equity Capital Markets

<div>
<p><a href="https://www.smartkarma.com/entities/prosus-nv-75c7a0c4-16ff-4433-a40f-25ae5b24077d" target="_blank" data-smartkarma-citation="entities:28498:1" rel="noopener">Prosus NV (PROSY US)</a> aims to raise around US$14.5bn via selling a 2% stake in <a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent Holdings (700 HK)</a>.</p>
<p>The deal comes nearly three years, and right after the lock-up expiry, from the previous placement when on 22nd March 2018, <a href="https://www.smartkarma.com/entities/naspers-ltd" target="_blank" data-smartkarma-citation="entities:21085:1" rel="noopener">Naspers (NPN SJ)</a> reluctantly sold US$10bn worth of <a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent Holdings (700 HK)</a> shares.  We have covered the previous placement in our earlier note, <a href="https://www.smartkarma.com/insights/tencent-placement-huge-deal-in-size-small-in-relative-terms-succumbing-to-the-holdco-discount" target="_blank" rel="noopener">Tencent Placement - Huge Deal in Size, Small in Relative Terms - Succumbing to the HoldCo Discount</a>.</p>
<p>We have been covering the lock-up expiry since Feb 2021 in:</p>
<ul>
<li><a href="https://www.smartkarma.com/insights/tencent-placement-lock-up-expiry-us-10bn-block-and-buyback-linked-holdco-trade" target="_blank" rel="noopener">Tencent Placement Lock-Up Expiry - US$10bn+ Block and Buyback Linked Holdco Trade, and</a></li>
<li><a href="https://www.smartkarma.com/insights/tencent-placement-lock-up-expiry-block-and-buyback-linked-holdco-trade-update" target="_blank" rel="noopener">Tencent Placement Lock-Up Expiry -  Block and Buyback Linked Holdco Trade Update</a></li>
</ul>
<p>In this note, we will talk about the deal dynamics.</p>
</div>


Prosus NV (PROSY US) aims to raise around US$14.5bn via selling a 2% stake in Tencent Holdings (700 HK).
The deal comes nearly three years, and right after the lock-up expiry, from the previous placement when on 22nd March 2018, Naspers (NPN SJ) reluctantly sold US$10bn worth of Tencent Holdings (700 HK) shares.  We have covered the previous placement in our earlier note, Tencent Placement - Huge Deal in Size, Small in Relative Terms - Succumbing to the HoldCo Discount.
We have been covering the lock-up expiry since Feb 2021 in:

Tencent Placement Lock-Up Expiry - US$10bn+ Block and Buyback Linked Holdco Trade, and
Tencent Placement Lock-Up Expiry -  Block and Buyback Linked Holdco Trade Update

In this note, we will talk about the deal dynamics.


Tencent Placement - Another Reluctant but Well-Flagged Sell Down, Lifting the US$14.5bn Overhang

<div>
<p>On 29th Mar 2021, we spoke about the Archegos driven correction in some of the China ADRs,  <a href="https://www.smartkarma.com/insights/china-adrs-blocks-liquidation-buyback-implications" target="_blank" rel="noopener">China ADRs- Blocks, Liquidation, Buyback - Implications.</a> That in turn had followed close on the heels of the SEC driven correction for the sector, which we looked at in <a href="https://www.smartkarma.com/insights/china-adrs-sec-notice-instead-of-three-probably-have-four-years-till-2025-correction-overdone" target="_blank" rel="noopener">China ADRs - SEC Notice - Instead of Three, Probably Have Four Years till 2025 - Correction Overdone</a>.</p>
<p>In this note, we'll talk about the updates since our previous note.</p>
</div>


On 29th Mar 2021, we spoke about the Archegos driven correction in some of the China ADRs,  China ADRs- Blocks, Liquidation, Buyback - Implications. That in turn had followed close on the heels of the SEC driven correction for the sector, which we looked at in China ADRs - SEC Notice - Instead of Three, Probably Have Four Years till 2025 - Correction Overdone.
In this note, we'll talk about the updates since our previous note.


China ADRs Quick Update - SEC, Archegos, Blocks - Showing Signs of Life

<div>
<p>Trip.com plans to raise around US$1-2bn in its secondary listing in Hong Kong. The company is said to have won listing approval last week and will look to launch its secondary offering soon.</p>
</div>
<div>
<p>In our previous notes, along with covering all of the past listings, we have also looked at the overall drivers for the secondary listings in our earlier notes, links to which are below: </p>
</div>
<div>
<ul style="list-style-type: disc;">
<li>
<a href="https://www.smartkarma.com/insights/china-adrs-secondary-listing-deep-dive-yin-and-yang" target="_blank" rel="noopener">China ADRs Secondary Listing Deep-Dive: Yin and Yang,</a> published in Feb 2020,  we looked at the background and rules around undertaking a secondary listing in Hong Kong and then came up with a short-list of companies that might undertake a secondary listing. </li>
<li>
<a href="https://www.smartkarma.com/insights/china-adrs-secondary-listing-covid-19-has-increased-the-tension-but-narrowed-the-short-list" target="_blank" rel="noopener">In China ADRs Secondary Listing: COVID-19 Has Increased the Tension but Narrowed the Short List</a> published in May 2020, we looked at the recent developments and provided an revised short-list</li>
<li>In <a href="https://www.smartkarma.com/insights/china-adrs-secondary-listing-holding-foreign-companies-accountable-act-i-m-coming-home" target="_blank" rel="noopener">China ADRs Secondary Listing - Holding Foreign Companies Accountable Act - I’m Coming Home</a>, published in May 2020, we spoke about the implication of the act which had made its way through the senate.</li>
<li>In <a href="https://www.smartkarma.com/insights/china-adrs-secondary-listing-pipeline-looks-rich-have-three-years-to-move" target="_blank" rel="noopener">China ADRs Secondary Listing - Pipeline looks rich, have three years to move</a>, published in Feb 2021, we looked at the recent updates from the Holding Foreign Companies Accountable Act and Hong Kong Exchanges changes to corporate weighted average voting rights. In this note, we’ll take an early look at the deal and talk about likely timing and impact of the raising.</li>
</ul>
</div>
<div>
<p>In this note, we’ll take a look at the deal and talk about the impact of the raising.</p>
</div>


Trip.com plans to raise around US$1-2bn in its secondary listing in Hong Kong. The company is said to have won listing approval last week and will look to launch its secondary offering soon.


In our previous notes, along with covering all of the past listings, we have also looked at the overall drivers for the secondary listings in our earlier notes, links to which are below: 




China ADRs Secondary Listing Deep-Dive: Yin and Yang, published in Feb 2020,  we looked at the background and rules around undertaking a secondary listing in Hong Kong and then came up with a short-list of companies that might undertake a secondary listing. 

In China ADRs Secondary Listing: COVID-19 Has Increased the Tension but Narrowed the Short List published in May 2020, we looked at the recent developments and provided an revised short-list
In China ADRs Secondary Listing - Holding Foreign Companies Accountable Act - I’m Coming Home, published in May 2020, we spoke about the implication of the act which had made its way through the senate.
In China ADRs Secondary Listing - Pipeline looks rich, have three years to move, published in Feb 2021, we looked at the recent updates from the Holding Foreign Companies Accountable Act and Hong Kong Exchanges changes to corporate weighted average voting rights. In this note, we’ll take an early look at the deal and talk about likely timing and impact of the raising.



In this note, we’ll take a look at the deal and talk about the impact of the raising.


Trip.com Secondary Listing - Probably Needs to Correct

China

Tencent Holdings Limited operates as an investment holding company. The Company, through its subsidiaries, provides Internet and mobile value-added services (VAS), online advertising, and e-commerce transactions. Tencent Holdings offers services to users worldwide.

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Tencent (700 HK)

Be Careful What You Wish For REDUX - Prosus Selling US$15bn in Tencent

Prosus is selling US$15bn of Tencent, locking themselves up for 3 years. They should have sold more and locked themselves up for less. The market...

Travis Lundy

Tencent Placement and the Holdco Implications - Deal Almost Done, Now What?

Prosus NV aims to raise around US$14.5bn via selling a 2% stake in Tencent. While the overall raising should be positive for Prosus and Naspers,...

Sumeet Singh

Tencent Placement - Another Reluctant but Well-Flagged Sell Down, Lifting the US$14.5bn Overhang

Prosus aims to raise around US$14.5bn via selling a 2% stake in Tencent. The deal comes nearly three years, and right after the lock-up expiry,...

Sumeet Singh

China ADRs Quick Update - SEC, Archegos, Blocks - Showing Signs of Life

On 29 Mar, we spoke about the Archegos driven correction, that had followed close on the heals of the SEC driven correction for the sector. In this...

Sumeet Singh

Trip.com Secondary Listing - Probably Needs to Correct

Trip.com plans to raise around US$1-2bn in its secondary listing in Hong Kong. The company is said to have won listing approval last week and will...

Sumeet Singh

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